The federal government directly buttresses the mortgage industry through insurance and guarantee programs: FHA has an insured portfolio in excess of $1.2 trillion, Ginnie Mae guarantees over $2 trillion in securities backed by mortgages with FHA or other federal agencies, and Fannie Mae and Freddie Mac –government sponsored enterprises (GSEs) guarantee a $6 trillion portfolio of mortgage-backed securities. As the latter two are currently in conservatorship under the Federal Housing Finance Agency (FHFA), good old Uncle Sam is ultimately responsible for them should they become insolvent. All told then, the federal government’s risk exposure exceeds $9 trillion. Obviously, in view of the $31 trillion debt the government is already saddled with, a complete collapse of the real estate market would likely overwhelm the government’s ability to prevent it from bringing down the rest of the economy. Needless to say, that must be avoided -at all costs. One way to do so is to make sure that prices do not decline to the point that a majority of homeowners find themselves with negative equity. However, this has become somewhat of a challenge. In an effort to combat high inflation, the Federal Reserve has seen fit to raise interest rates substantially, a policy that caused prices to decline nationwide . Coincidentally, with FHFA’s acquiescence, Fannie Mae is introducing a system called Value Acceptance that essentially reduces the number of transactions requiring full appraisals. Lenders have traditionally required appraisers to carry errors and omissions insurance, a mechanism that mitigates the possibility that appraisals might overstate the value of the collateral and cause lenders, servicers, and/or GSAs to suffer losses due to foreclosures. Presently it’s unclear who or what will compensate investors for the disappearance of this layer of risk protection, and whether they’ll be officially advised of this before they buy mortgage-backed securities in the secondary market.

Buying Power of Median Incomes

In 35 states the median income of a single earner is insufficient to buy a median-priced single-family home . The reason is that from 1950 to 2022 median prices grew much faster than median incomes. A precipitous decline to 1950’s price/income ratio would collapse the market, the broader economy, and the government. Therefore, the government is compelled to support an environment whereby prices perpetually climb at an optimal rate. Unfortunately, that makes homes progressively less affordable for single individuals who earn no more than a state’s median income. The system simultaneously prevents them from buying median-priced homes, the mechanism past generations relied on to accumulate wealth over their lifetimes. That has consequences: it depresses household formation and the fertility rate; it impacts GDP growth, the incidence of mental illness, the drug abuse rate, and life expectancy. It stands to reason that if the arid West could be gradually provided with enough water to support an economy (and density) akin to the moist East, people would more evenly disperse throughout the country. That would shift the demand for housing in the moist East to the arid West and eventually stabilize median prices. The key therefore is to materialize water in the western half of the country, and for that we’ll need hydrogen –lots and lots of it.